Maurice Stucke and Ariel Ezrachi “Looking Up in the Data-Driven Economy’ (2017) CPI Chronicle May

This paper – which you can find here – argues that analyses of the impact of internet platforms on competition should not only take into account the behaviour of these platforms towards their consumers downstream, but also towards their input/content providers.

The paper begins with the observation that U.S. antitrust policy (aside from cartel enforcement) has been plagued by a number of shortcomings. Competition has declined since the 1970s, along with the number of new businesses being created, while market and profit concentration have increased. There is a risk of these trends being reinforced by the emergence of big data and AI.

This is not something which is inherent to these technological developments: big data and AI’s effects on society depend on how firms employ them, how markets are structured, and whether firms’ incentives are aligned with society’s interests. At times, big data and big analytics can promote competition and welfare by making information more easily available and by providing access to markets. However, they may also have anticompetitive effects by enabling “some online sellers to tacitly collude and engage in behavioral discrimination” or by enabling “dominant “super-platforms””.

Looking downstream, super-platforms can use personal data to better price discriminate. This reduces their incentives to protect consumers’ privacy (and to promote technologies that promote data protection). “Less discussed, but of significant concern, are the upstream effects of these super-platforms. They have the power to harm many of the companies from whom they buy or acquire content — and that harm ultimately harms us. With these digital gatekeepers, the distinction between seller and consumer blurs. Many of us are not only consumers but producers. (…) Hence the power being brought to bear on the producer — theoretically to benefit the consumer — is actually being brought to bear also on the consumer, as a producer. (…)These super-platforms can use their significant market power to drive down earnings, while tossing a few pennies from each dollar they take from us back at us. Our competition laws deal with this kind of buyer power. These concerns, however, are often low on the enforcement agenda due to the indirect effects on “consumer welfare,” which is often measured by the price you pay for the goods or service.”

In short, the authors claim that competition enforcement should devote more attention to behaviour by super-platforms regarding their suppliers. Having first explained their concern with super-platforms in generic terms, the authors move to identify specific challenges:

E-monopsony – A monopsony is typically characterized as the only or dominant buyer in town. An e-monopsony can exercise its power both upstream and downstream. Regarding books, for example, an e-monopsony can depress the price paid to authors to below competitive levels, without these price reductions necessarily benefiting readers. For example, readers may pay for the entire e-book; the authors’ royalties are slashed if they can’t hold the reader’s attention until the last page; and the e-monopsony pockets the extra profits. Instead of promoting economic growth and welfare, such practices can reduce employment, reduce quality, and hinder innovation. Furthermore, an e-monopsony can use its trove of personal data to price discriminate both up- and down-stream. The e-monopsony, knowing who is reading each author’s work, how far the reader gets and how loyal the reader is, can charge the author’s loyal fans higher prices.

E-scraper – even if a super-platform is not a buyer, it can distort competition upstream by scraping the viability of upstream providers. The classic example of this is Google, which e-scraping practices the FTC Bureau of Competition found to be anticompetitive: “the natural and probable effect of Google’s conduct is to diminish the incentives of [rivals] to invest in, and to develop, new and innovative content, as the companies cannot fully capture the benefits of their innovations.” FTC Commissioners, however, never sued, and instead accepted voluntary commitments that, the authors imply, have not been followed through.

The authors then explain that these concerns are not conjectural. They are related to trends of stagnant incomes, and have impacts in terms of democratic process by becoming the main purveyors of information without the controls and regulation of traditional media.

This is an interesting paper, and I sympathise with the authors’ concern with developments regarding the digital economy. At the same time, I struggle to go along with their argument. It is unclear to me what the theories of harm are supposed to be in these cases. Overall, the authors seem at times to engage in an attempt to stretch competition law to achieve other, undefined policy goals. The discussion of books regarding e-monopsony is illustrative on this point. It is clear that the authors are concerned with the various e-books cases that were pursued across the world. These cases were the subject of extensive discussions in case law and in the literature. However, and while the authors are implicitly critical of the outcomes of the cases, the text does not contain any example of anticompetitive practices, nor does the text discuss the decisions or the literature that dealt with this issue and discussed it thoroughly.